Las Vegas’ Multifamily Market Is All About Growth, Challenges

by Jeff Shaw

— By James Hall, ABI Multifamily —

It’s been a tumultuous year for global capital markets and asset prices, which have had to contend with a broad array of geopolitical and economic headwinds. The Las Vegas multifamily market — while it remains demographically sound — is dealing with inflationary-based pricing concerns and fundamental characteristics dampening investor appetite.
Amongst all the noise and negatively skewed fundamentals, Las Vegas’ economy continues to grow, with tourism surpassing pre-pandemic levels this quarter. Harry Reid Airport reported the highest recorded number of passengers in February, indicating that the market continues to benefit from a surge in post-pandemic domestic tourism.
A report released by the Federal Funds Information for States ranked Nevada as first in the nation for economic growth and momentum last year. The measurement considers a wide array of key economic and demographic indicators, including population, personal income and employment growth.
While California continues to reel from a declining population, both Nevada and Arizona are benefiting from a surge in net-migration. The population of Las Vegas is expected to double by 2060, which would add an additional 2 million residents to the MSA, per Woods and Poole Economics..
Las Vegas residents have a much higher propensity to rent compared to owning, with the metro reporting the lowest homeownership rate in the country. About 43 percent of properties in the metro area reported as renter occupied. This provides considerable opportunities for multifamily investors and developers.
Interest rate hikes have also put pressure on single-family home purchases across the Valley. The average 30-year fixed rate mortgage in Las Vegas increased to $2,214 per month, while a 15-year fixed rate mortgage reached $3,385 at the end of 2022. The simultaneous increase in rental rates and mortgage costs should have a net-benefit for the multifamily market.
There are roughly 229,000 multifamily units across the Valley. Of those, Class C properties make up just 15 percent of total supply. The average monthly rate of these units is $1,173 per month, compared to $1,497 per month for Class B, and $1,741 per month for Class A units. This is a spread of more than 48 percent. The market suffers from an extreme dearth of Class C units compared to its total inventory, which is pricing many would-be renters out of the market.
Rental rates had remained steady over the previous 12-month period, but they’re up more than 32 percent since pre-pandemic levels, to $1,540 per month. This rapid rise has put upward pressure on the market’s vacancy rate, which increased 390 basis points to 6.9 percent at the end of the first quarter of 2023.
However, unlike other major metropolitan areas across the nation, Las Vegas isn’t dealing with a construction boom, but rather a pricing issue as real wages continue to decline, impeding occupancy rates.
Developers completed almost 1,100 units in the first quarter of 2023, or 2,981 units over the previous year. This represents a 1.3 percent expansion in total inventory. There are currently 9,256 units under construction with another 5,441 units in the planned/planning phase. Development is spread across the Valley, as Las Vegas benefits from its expansion and diversification in the sports and entertainment industries, hospitality, industrial growth and business sector migration.
Over the past five years, Las Vegas has added two major teams: the NHL Golden Knights and the NFL Raiders. A recent land purchase by the Oakland Athletics confirms the city will be adding an MLB team as well. The two professional franchises currently in Las Vegas generated almost $3 billion in revenue, with $750 million earned in 2022 alone. In total, the state expects an increase of $5 billion in annual revenue from new sports ventures. Las Vegas is also set to host the Super Bowl in 2024, which is expected to bring in $500 million in net revenue.
Overall, we believe there are ample investment opportunities across the metro. Strong demographics, net-migration and a diversified economy will facilitate continued growth across all sectors.

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